Terms of payment

Sales contract

The sales contract is the agreement reached by the seller and the buyer (the parties to the contract). It can be made orally or in writing, although it is usual for the contract to be drawn up in writing to prevent disputes.

Sellers tend to make firm offers when trading in goods where the prices fluctuate a lot. They set a fixed price and if the buyer does not place an order within the period of time where this price is valid, the offer expires. The seller can then make another offer with new prices to keep up with the prices on the market. In this case, if the buyer is not interested in the goods, he has to return them within a certain period of time; otherwise he will have to pay for them.

After a sales contract has been concluded, the seller and the buyer have to fulfill certain liabilities (that means there are certain things they have to do). The seller’s liabilities are: to deliver goods on time and in perfect condition; to ensure that the title to the goods is transferred to the buyer – in other words the seller has to make sure that the buyer becomes owner of the goods. This is normally done by passing a special document, the document of title, to the buyer. The buyer’s liabilities are: to accept delivery of the goods; to pay for the goods within the time agreed. If one party does not fulfill its liabilities, the contract is broken. In this case the other party (the injured party) can claim compensation.

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When deciding on the terms of payment, the seller and the buyer have to agree on: when to pay (for example, in advance, on delivery); how to pay (for example, cash, cheque, transfer); how much to pay (whether the seller is prepared to grant any discounts).

The terms of payment such as Cash with Order (CWO) and Cash on Delivery (COD) are particularly suitable for domestic trade. If the buyer sends payment with his order, it is favourable for the seller because there is no risk of not getting payment for the goods. As payment may arrive some time before the goods are sent out, it also means the seller can work with the money. But it is not favourable for the buyer, because if the seller is unreliable, the buyer might pay for the goods and not get them. And if the buyer has to return the goods for any reason, he has to make sure that he gets his money back. Because this term of payment carries a certain risk for the buyer, he will generally only agree to it in certain situations: if he is doing business for the first time with a reputable company; if the seller gives him a discount; if he places a special, expensive order. In this case the seller may ask for a part-payment to be sent with the order.

If the terms of payment are Cash on Delivery, the buyer pays the company which delivers the goods at the time they are delivered. The payment is then transferred to the seller. Here again the risk for the seller of not being paid is minimal. And even if the buyer refuses to accept delivery and pay, the seller does not lose the goods. As for the buyer there is no longer the risk for him of not receiving goods he has paid for. But the main disadvantage for him is that he does not have to inspect the goods before paying for them. Companies which don’t know anything about the financial standing of their customers prefer to use this term of payment.

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